Important information - investment values and income from investments can go down as well as up, so you may get back less than you invest.
The FTSE 100 is the flagship index for the UK stock market, where Britain’s biggest companies reside.
The ‘Footsie’ is likely to hold a place in most investors’ portfolios in some form or other - and just recently those investors will have been glad of its presence. The FTSE 100 has gained more than 17% over the past year. But it’s not only good performance that has made it stood out.
The FTSE 100 is carving out a role for itself as a useful way to diversify investments because it is different in some key ways to other major indices around the world - most notably the US blue-chip index, the S&P 500.
In this article we’ll explain what the FTSE can potentially offer investors - and run through some different ways you can invest in it.
What is the FTSE 100?
Even if you don’t know much about investing you are likely to have heard of the FTSE 100. It’s the thing that gets mentioned on the news and is often used as a byword for the UK stock market in general.
The FTSE 100 is an index, which just means a list, made up of the 100 biggest companies listed on the UK stock exchange. When you invest in the FTSE 100, the amounts you invest in each company are proportionate to the size of those companies - worked out by multiplying their total number of shares by their share price.
For example, investing in the FTSE 100 right now would mean almost 9% of your money would go into HSBC - the largest company in the index - while less than 0.1% would go into the smallest company.
FTSE 100 vs S&P 500
The S&P 500 is an equivalent index for the American stock market - comprising the 500 biggest listed US companies. The S&P 500 is much bigger than the FTSE 100, not just in terms of the number of companies but also their worth.
For this reason, it is normal for an investor to hold a much larger share of their money in the S&P 500 than the FTSE 100.
There are other differences, too. Unlike its American counterpart, the FTSE 100 is not dominated by giant technology companies, boasting instead leading companies from more ‘old-world’ industries such as mining, oil and gas, banking and pharmaceuticals.
This has led the FTSE 100 - and every other major market - to underperform the S&P 500 for much of recent history. It also means the FTSE 100 tends to trade on a much lower valuation - meaning the price of companies in the FTSE 100 is lower relative to the earnings they produce than in the S&P 500.
In June 2026, for example, the collective value of the FTSE 100 was 12.8 times predicted earnings, versus 22 times for the S&P 500.1
There are times when the different make-up and cheaper valuation of the Footsie works in its favour - including this year. As US tech companies have become ever-more highly valued, a greater focus has been put on their ability to produce blockbuster profits from still-developing AI. In moments when those profits look uncertain, many investors look to spread their money into areas less exposed to tech and AI, and the FTSE 100 has benefitted from that, reinforcing its reputation as a key diversifier in portfolios.
FTSE 100 - a source of dividend income
The make-up of the FTSE 100 also means it typically generates a higher level of dividend income than other indices. It is dominated by mature companies in mature industries which are no longer in a phase of rapid expansion - think oil, banking and mining.
These companies tend to use a higher proportion of the profits they make to reward shareholders via dividends, rather than ploughing those earnings into developing new products or markets in a way that could grow their share price.
This results in a ‘dividend yield’ - the value you can expect back in dividend income as a percentage of your investment - that is higher than other markets. Right now, the FTSE 100 yields around 3% as opposed to just 1% for the S&P 500. The yield on the FTSE 100 has hovered around 4% historically.
Ways to invest in the FTSE 100
Here are three ways to access the potential benefits of the FTSE 100.
1. The purest way - iShares Core FTSE 100 UCITS ETF
There are investments that aim to reproduce the performance of a chosen index exactly. These are sometimes referred to as ‘index funds’, ‘passive funds’ or ‘tracker funds’. Because much of the investment decision-making has been done away with - they just invest according to weightings in an index - they can be amongst the cheapest ways to invest.
The iShares Core FTSE 100 UCITS ETF does this job and features on our Select 50 list of favourite funds. Technically speaking, this is an ‘exchange traded fund’ which means it is bought and sold on the stock exchange like a share, but it produces a return which matches almost exactly the FTSE 100. And it does the job for an ongoing charge of just 0.07% making it one of the cheapest ways to invest anywhere.
- More on iShares Core FTSE 100 UCITS ETF
2. FTSE 100 exposure with an expert eye - FTF ClearBridge UK Equity Income
Unlike an index fund which sticks as closely as possible to the index, the ClearBridge UK Equity Income Fund is managed ‘actively’, meaning a team of professionals will select shares to buy based on their expertise in the hope of producing a return ahead of the wider market.
The fund does not invest exclusively in the Footsie - it holds some shares from smaller companies - but most of its money is held in FTSE 100 companies. Moreover, it has the stated aim of generating a high level of income, targeting sustainable and growing dividends and currently yield 3.62%. Please note this is not guaranteed.
The approach means that the fund can underperform the FTSE 100 at times - but gives the chance of beating it as well. The fund features on our Select 50 and is more costly than passive options with an ongoing charge of 0.52%.
- More on FTF ClearBridge UK Equity Income
3. For FTSE 100 income hunters - City of London Investment Trust
Investment trusts are another type of pooled investment - like a fund or an ETF. They are structured as companies, with a board of directors, and are listed on the stock exchange. They don’t trade in goods or services like a normal company, however. Instead, they invest money in other companies and assets to produce a return.
When you buy shares in an investment trust the return you get depends on the rises and falls in its share price. However, the share price will reflect the performance of the assets it holds over the long term. In the short term, the shares can rise above of fall below the value of the assets.
This extra complexity means investment trusts carry slightly more risk - but they are much beloved by seasoned investors because they have the ability to improve returns in ways conventional funds can’t. In particular, they can hold back earnings from one year to the next, allowing them to smooth out the dividend income they pay to their investors.
This has allowed some investment trusts to build up long track records on growing dividend income - meaning the cash amounts they have paid investors has increased each and every year. You can see a list of the investment trusts that have increased their dividend for more than 20 years in a row here.
The longest track record of all belongs to The City of London Investment Trust, which has increased its dividend in each of the past 60 years by investing overwhelmingly in the FTSE 100 companies. This track record has helped City of London become popular with income-hunting investors, and the trust regularly appears on our list of best-selling investment trusts.
- More on City of London Investment Trust
Source:
1FactSet, 24.6.26, based on forecasts for 2026.
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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. The shares in the City of London investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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